Gold Blasts Through $1500: Message? Central Banks Out of Control, Not Inflation

-edited

Gold blasted through the $1500 level today. Let's analyze the message. Here's a hint: The message isn't inflation.

The above chart is and end-of-day chart from yesterday. Gold closed at $1484.

At 11:30 AM Central, gold was at $1520, up $36 on the day.

Gold vs Copper

What's the Message?

Stephanie Pomboy at Macro Mavens nails it.

Gold Not an Inflation Hedge

As I have pointed out numerous times, and contrary to popular belief, gold is not an inflation hedge. Gold fell from $800 to $250 with inflation every step of the way.

Rather, gold is a measure of faith in central banks that everything is under control.

Gold vs Faith in Central Banks

Everything Under Control?

Clearly not, and I have easy-to-understand proof.

  1. Hello Treasury Bears: 10-Year Bond Yield Approaching Record Low Yield
  2. Negative Yield Debt Hits Record $15 Trillion, Up $1 Trillion in 2 Business Days
  3. US Treasury Declares China a Currency Manipulator Under Orders From Trump

If you believe gold tracks inflation or is some kind of inflation hedge, you need to think again.

Only in hyperinflation or its mild form, stagflation, is gold an inflation hedge. But even then, both are synonymous with central bank stress.

Hello Treasury Bears

Let me make it simple: It's the debt, stupid!

The global economy is choking on debt as central banks are determined to have more of it.

Inflation? Forget about it. The bubbles are proof we "had" inflation.

The Bond markets says something else is coming up.

Mike "Mish" Shedlock

Comments (34)
No. 1-19
HubbaBuba2
HubbaBuba2

The "Minsky Moment". As Friedman put it "debt feels good until it doesn't". To me, the situation can be described as 'you can't solve a debt problem [GFC] with another debt problem'. During the Great Depression among other things, the Fed lowered margin requirements back to 50% from a bubble-inducing prior 90%. The point is the country rebuilt their balance sheets. Now, the world has done anything but - and another debt problem will not solve a debt problem - it's just compounding it and the inevitable.

AWC
AWC

Wouldn’t using gold as a hedge against the Fed be a bit like fighting the Fed?

And, what of the gold price when massive “shock and awe” QE4 is announced?

Ah, the dilemmas surrounding the Fallacy of Potent Directors.

Mish
Mish

Editor

"Wouldn’t using gold as a hedge against the Fed be a bit like fighting the Fed?"

If so it's been a generally successful fight if you pick your times right

ColoradoAccountant
ColoradoAccountant

I don't remember any economics books covering the topic of negative interest rates. Negative interest rates means that the currency is worth less than face value, which it has been since Nixon was President. That is why gold and silver are rising, fear among the savers, who figured out where the bankers are going.

2banana
2banana

So what is a reasonable estimate on how high gold will increase in value?

JonSellers
JonSellers

Golds blowing up. Are treasuries doing the same today? If so, sounds like a lot of money running for safety. What's changed? What do they know that I don't?

Escierto
Escierto

The miners are up today, not as strong as I would like but at least they are participating. Yesterday some of them were actually down on the day but not today. My only complaint is they should be a lot higher based on a gold price of $1500.

Sechel
Sechel

Not just gold, bitcoin and I don't quite get it.

Corto
Corto

The talk is starting to worry me. "how high gold..." "Gold's blowing up..." "what of the gold price with QE4?" Been down this road before. Maybe it will be different, but get ready for the opposite of what you think should happen.

ZZR600
ZZR600

Historically the price of gold appears to be quite well correlated to the US debt ad debt ceiling. Gold seems to be playing catch-up at the minute

thimk
thimk

Peter Schiff is doing cartwheels

truthseeker
truthseeker

Will you submit it if I ask the question again? A fair question don’t you think?

truthseeker
truthseeker

Ok where was the yield on the 10 year note back in 2011 when gold was at its record above 1900?

truthseeker
truthseeker

Ok the lowest yield on the 10 year note back in 2011was 172. The average rate was 278. So without looking I think we are past 172 on the low side a good bit.

truthseeker
truthseeker

The 10 year note yield right now is 171 so one could say gold could move much higher based on that yet I think there are many more reasons for gold to b much higher-like debt-but gold is over bought needs to correct this bullishness before going higher imo

CCR
CCR

Debt has kept rising but Gold corrected by $800 / ounce or 40%. Did Faith in CB increase by 40% during that span as world debt kept increasing? Now suddenly no faith again? Not sure there are parallels in the thinking.

UrbanDigs
UrbanDigs

"Rather, gold is a measure of faith in central banks that everything is under control." Exactly. I would add faith in Fiat currency as well, but I guess the central bank term covers that

Nickelodeon
Nickelodeon

I can't help but think gold's given value in dollars at any point in time is more than just faith in central banks and not also related to "inflation"(pick your definition, whether it's expanded monetary base or price increases).

The price of a steak or a cup of coffee years ago isn't higher because of central bank expectations....

The notion that it's primarily centered around central back faith is just too simple an explanation to me and the surrounding data not convincingly causatory vs correlative. Who can't see stagflation in the least coming down the pike? But as you note, when people see price increases(caused by inflation) then it also calls into question central bank policies....seems like a chicken vs. egg discussion to me.

shred1
shred1

"Only in hyperinflation or its mild form, stagflation, is gold an inflation hedge."

What about hyper-stagflation, Mish?